Knowing the differences between a guardianship account and a custodial account, and how to use them appropriately can save a lot of headache in court, as well as money by avoiding probate or guardianship proceedings
Los Angeles (PRWEB) October 8, 2008
Leaving a gift of money to minors can raise a multitude of legal issues for the recipient. Mina N. Sirkin, a Los Angeles, California, family wealth lawyer, author of the blog MomsRules.com , Musings of a Mom About Kids and Money, offers the following money tips and information on how to best leave a gift of money to a minor.
"If you are leaving money or inheritance to a minor, there are many variables to consider when leaving such a gift to children or grandchildren," Sirkin says. "Knowledge about the different ways of leaving money to a minor will insure that he or she safely receives his or her gift and can avoid court proceedings and lots of monetary cost."
Sirkin notes that there are some significant differences between leaving an inheritance in a guardianship account and leaving an inheritance in a custodial account.
"Knowing the differences between a guardianship account and a custodial account, and how to use them appropriately can save a lot of headache in court, as well as money by avoiding probate or guardianship proceedings," Sirkin says.
When it comes to guardianship accounts, a Guardian must be court appointed. A bond needs to be set for the guardian or waived by the parent of the minor in a will or other instrument. A Guardian is obligated to file an annual accounting in the court. A guardian who is a parent of the child cannot use the money of the guardianship to discharge his/her duty to support his/her kid or other kids in the family.
"What this means is that if there is an expense that the parent guardian is legally obligated to pay, it has to paid from his earnings, and not from the guardianship assets," Sirkin says. For example, normal educational needs of the minor have to be paid for from the earnings of the parent guardian, not from the guardianship accounts. However, a parent guardian can apply to the court to ask whether the court will authorize him to pay for unusual educational expenses of the minor from the minor's funds. In most cases, the court orders most of the assets of the minor to be placed in blocked accounts. The guardian is not allowed to use the guardianship account for his own personal use. The guardianship must end upon the minor reaching 18 years of age. The guardian can be held responsible to the minor for an extended period even after the guardianship ends.
As compared to guardianship accounts, with custodial accounts (UTMA or CUTMA accounts), a custodian of the minor does not necessarily need to be appointed by the court and the custodial assets can be transferred to the custodian outside of court. In California, a custodial account can be established in several ways. For example, a grandparent can nominate a custodian of the funds of the minor in a separate document, such as a nomination instrument, or simply on a stock account as a beneficiary. The designation has to be specific and must state that X is acting as the custodian for X (minor). In California, the custodial account distribution age can be arranged ranging from 18 to 21. Custodial accounts do not change the primary parental legal obligation to support the minor. The minor does have a right to request an accounting at the end of the term of the custodianship.
"With a custodial account, grandma or mom can designate different custodians for different accounts for the benefit of the same minor," Sirkin says. "The custodian cannot use the minor's funds for the custodian's personal use, but the account is not blocked. There is no requirement of a formal accounting in court unless the minor demands it."
Sirkin cautions that there are cases where a custodial account should not be used, such as when the minor has a disability or special need. In fact, the best way to leave money to a minor is in a minor's trust. A minor's trust can be configured either for a typical child, or for a spcial needs child with a special needs provisions. A minor's trust can be fllexible in that the trust creator can set the time of distribution, even long after reaching the age of majority.
Depending on the amount of the gift or inheritance, Sirkin recommends that anyone leaving money to a minor should always consult an attorney to discuss their specific situation, as all the legal and tax ramification of a gift should be discussed with a lawyer before making a choice.
Mina N. Sirkin is a family wealth lawyer and a TV legal expert in Los Angeles, California. Ms. Sirkin is a Board Certified Specialist in Estate Planning, Probate and Trust Law by the Board of Legal Specialization of the State Bar of California.
For more information on gifts to minors, please contact: phone 818-340-4479.